Kollider Raises $2.4M to Build ‘Lightning-Native’ Financial Products

Bitcoin derivatives exchange Kollider has closed a $2.35 million seed funding round that was led by Lemniscap, with participation from Castle Island Ventures, Polychain Capital, Alameda Ventures, Pfeffer Capital, Okex and other investors.

The firm intends to use the funds to expand its exchange business and add more Lightning-native financial tools to its existing product lineup. Lightning is a network built on top of the Bitcoin blockchain that helps make bitcoin transactions faster and cheaper.

Kollider refers to its core product as “the world’s first Lightning-native derivatives exchange.” The company is also working on bitcoin-backed synthetic stablecoins and a Lightning-enabled bitcoin wallet.

“We had to battle-test the exchange. It's an exchange completely built from scratch,” Kollider co-founder Konstantin Wünscher told CoinDesk in an interview. “We improved it, built upon it and added some features that you can't get anywhere else, especially the native Lightning integration.”

Read more: Move Over, Ethereum – Bitcoin’s Lightning Network Has Apps, Too

What’s a 'Lightning-native' derivatives exchange?

Most derivatives exchanges require users to fund their accounts before trading. That process can be fast or slow depending on the asset in question. Cryptocurrencies like bitcoin typically require up to six confirmations, which usually takes about an hour.

Kollider seems to have found a way around Bitcoin’s inconvenient wait time – native Lightning integration.

“Kollider Exchange leverages Bitcoin’s Lightning network to allow users to instantly open and close positions directly to and from their Lightning wallets. Users don’t need to make deposits in advance or pre-fund accounts,” the Kollider team stated in a release provided to CoinDesk.

According to Kollider’s website documentation, users who don’t use Lightning can still make on-chain bitcoin deposits the old-fashioned way.

Bitcoin-backed synthetic stablecoins

Historically, bitcoin has exhibited high volatility characterized by wild price fluctuations, making it largely unsuitable for everyday payments (although bitcoin’s volatility is currently at a two-year low). This is where stablecoins come in. A stablecoin is an asset-backed cryptocurrency or token designed to minimize price volatility.

Read more: Bitcoin Flat as Volatility Hits 2-Year Low and Stocks Rise

Synthetic stablecoins are a little more abstract and essentially mimic stablecoins without creating an actual stablecoin token. If a synthetic stablecoin is backed by bitcoin, it achieves stability by simultaneously maintaining a long (buy) and short (sell) position in bitcoin.

“The idea is that when you hold one bitcoin, you’re obviously long. But then you use a futures contract and you go short one bitcoin at the same time,” Wünscher explained. “When the price goes up, the bitcoin you hold will obviously appreciate and the value of the short position will depreciate and they cancel each other out. You basically take a market-neutral position.”

But it doesn’t stop there. Because short positions can be taken in several fiat denominations, Kollider users can subsequently create synthetic stablecoins pegged against a diverse range of currencies.

“So if you go short in the bitcoin euro market, you peg it against the euro. If you go short in the bitcoin USD market, you peg it against U.S. dollars. You can pretty much peg against any fiat currency as long as there is a futures market that allows you to short bitcoin,” Wünscher said.

Another feature of Kollider’s synthetic stablecoin model is no overcollaterization (putting up collateral that’s worth more than the stablecoin itself). Decentralized-finance (DeFi) project MakerDAO is famous for its overcollateralized Ethereum stablecoin, DAI.

MakerDAO’s overcollaterization rate for DAI was 170% this past August. In other words, users would need to post $170,000 of collateral in ether (ETH) to receive the equivalent of $100,000 in DAI.

Read more: How Does MakerDAO Work? Understanding the 'Central Bank of Crypto'

“[With Kollider] you don't have to overcollateralize, you simply put in the base amount that you're going to hold long. You're simultaneously short on that, so your exposure is zero; even if the price moves in either direction,” Myles Snider, Kollider’s head of marketing and business development, explained in an interview with CoinDesk.

Kollider’s synthetic stablecoins are now in “alpha,” meaning users can test them out with small amounts. “We have hard-set limits, but we are still testing and improving,” Snider said.

The Kollider Lightning wallet

Another key product that is yet to be fully unveiled is the Kollider Lightning wallet. The company describes it as a Google Chrome extension that will be fully integrated with Kollider’s stablecoins and other applications in the Kollider ecosystem.

“Users will be able to easily move funds between a BTC balance, a USD balance, and a EUR balance with a clean and easy-to-use interface,” the company told CoinDesk in the release.